How Economists Hide Damage of Minimum Wage Laws

Minimum wage laws are hurting us more than we are being told—the truth is hidden by a simple trick.

People constantly assure us that minimum wage will be helpful. When confronted with economic reality, however, many then change tactics. They promise that the damage done by minimum wage law will be minimal.

That admission by itself should alert us that minimum wage law is a curse rather than a blessing, but the defense of minimum wage laws is quite subversive. It fools even the skeptical listener into accepting a premise that is antithetical to sound economics and real prosperity.

The hidden premise was laid bare recently by Philip R.P. Coelho and James E. McClure in an article in the Indiana Policy Review:

Suppose a doctor told a two-pack-a-day smoker not to worry about his tobacco addiction because smoking another half pack per day would shorten his life expectancy by only six weeks. What would you think of that physician? The physician may have been telling the literal truth; the additional damage done to the health and life-expectancy of smoking an additional 10 cigarettes per day on top of the 40 (two packs) already consumed is relatively small.

But this ignores well-documented evidence that consuming two packs per day reduces life expectancies by more than 10 years. Any doctor focusing solely on the additional (marginal) negative impact of smoking could be accused of incompetence and medical malpractice. Yet this is precisely what economists do whenever they assess the damage done by minimum wage legislation; their analysis focuses on the additional harm done by an increase in legislated wages, it completely ignores the impact that existing minimum wages impose upon society’s most vulnerable.

Economic analysis focuses almost exclusively upon what will happen to unemployment with an increase in the minimum wages; ignored is the harm that current levels create. Minimum wages deprive the mentally and physically disabled, the least skilled, least educated, and most inexperienced workers a chance to compete with more able, skilled, educated and experienced workers for jobs by working for lower wages.

What this means is that any time Republicans decide to engage a fight with Democrats over whether to raise the minimum wage they are already supporting the economic superstition that minimum wage works. It would be the same as a doctor arguing against a smoker increasing his intake by half a pack a day. By engaging in such an argument, he would virtually encourage the smoker to think that his basic smoking habit was no big deal and that the only question he should worry about is if he should increase his number of daily cigarettes or let them remain the same.

When Republicans object to raising minimum wage, they make it sound as if they think the current minimum wage is OK. And if they encourage people to believe that the current minimum wage is safe then why wouldn’t it not also be safe to raise it a small amount?

Coelho and McClure show that the minimum wage is quite damaging to everyone, especially to those who are most economically vulnerable. If Republicans want to be taken seriously as opponents of a raise in the minimum wage law, they need to deliver a consistent and economically sound argument. They need to demand the abolition of all minimum wage laws.

Starbucks’ Howard Schultz and other men of good will unthinkingly embrace the belief that higher living standards can be legislated by simply putting floors on wages. This does not create prosperity; it creates poverty and misery. Even worse, the damages it does are concentrated upon society’s most vulnerable. This is a sin.

We need to argue that the government stop sinning rather than argue merely that they not start sinning more.